cd to project directory and execute the following: The word project is part of the command, and is not to be replaced with an actual project name. The documentation does not make this clear and should be improved.
android update project -p .
You can use the command line argument for setting the sdk.dir, e.g:
ant -f xyz/build.xml clean release -Dsdk.dir=/Applications/adt-bundle-mac/sdk/
You can use sdk.dir in projet.properties file to define the sdk home or use an environment variable (more flexible for team work).
sdk.dir
export ANDROID_HOME=<the path to your sdks>